Italy's central bank today warned of a possible credit crunch as market tensions increase bank financing costs and said growth slowed in the third quarter as gloomy Italians spent less.
"Growth in Italy is weaker in the third quarter," following a 0.3% economic expansion in the second quarter, because "the situation has worsened over the summer," the Bank of Italy said, without specifying the figures.
The economy is suffering from weak domestic demand because Italians are concerned about unfavourable job prospects and "growing uncertainty over the economic situation in general," it said.
"Short-term expectations among businesses and families are marked by a growing pessimism" and entrepreneurs are less willing to invest, it added.
According to government estimates, the Italian economy remained virtually stagnant in the second quarter - though Rome is still banking on 0.7% growth over the year.
Not for the first time, the bank called on the government to "reinforce growth measures" and warned of "structural weaknesses" in the economy and the risk of a credit squeeze.
The debt crisis hounding Italy with "particular intensity" has impacted on the cost and capability to refinance banks and has made it increasingly difficult to get credit, it said.
Loan criteria for businesses have toughened further in the third quarter. The percentage of general managers who have experienced difficulties in getting credit went up to 28.6% in September compared to 15.2% in June according to a joint study by the Bank of Italy and business daily Il Sole 24 Ore.
But Italian banks remain "solid," the central bank said. The ratio of core capital for the five biggest banking groups rose to 8.6% at the end of June compared to 7.4% at the end of 2010 thanks to capital increases, it said.
